Business Principles, Tools, and Techniques in Participating in Various Types...
How Resilient are MBS to CDO Market Disruptions
1. How Resilient Are MBS to CDO Market Disruptions? By Joseph Mason Joshua Rosner Discussion by Tyler Yang, IFE Group February 15, 2007
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4. Typical Private MBS (REMIC) Structure Tranche A1 Tranche A2 Tranche BBB Tranche Residual Prepaid Principal Default Loss First Loss Default Loss Mezzanine Loss AA Support Level Mortgage Pool CDO Buys
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7. CDO Investors Borrower Lender/ Issuer REMIC Tranches CDO Junior tranches Mortgage pool Mortgage loan $ $ $ Foreign Investors Mutual Fund Hedge Fund
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13. BBB Trache Is Riskier than BBB Bond Tranche A1 Tranche A2 Tranche BBB Tranche Residual Prepaid Principal Default Loss First Loss Default Loss Mezzanine Loss AAA Support Level Mortgage Pool Pass Through BBB Over Collateral Principal & Interest Default Loss First Loss
14. Tranche BBB And PT Gets Same Rating Tranche A1 Tranche A2 Tranche BBB Tranche Residual Mortgage Pool Pass Through BBB Over Collateral Loss
15. Cliff! Tranche A1 Tranche A2 Tranche BBB Tranche Residual Mortgage Pool Pass Through BBB Over Collateral Loss Return = -100% Return = -20%
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21. Probability of Income Shortage Yang, Ling, and Cho, 2006, “Balancing Credit and Interest Rate Risks: Choice between Fixed- and Adjustable- Rate Mortgages”, presented at 2006 International AREUEA coference
23. Encourage Home Ownership High Income Household Poor Household Homeless current renters young professionals moderate-income households seniors person with disabilities No Yes No Yes Wealth Constrained? Income Constrained?
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25. Housing Market Forecast Follain and Follain, “Searching for Clues About the Future of House Prices”, 2007 Cyberhomes.com
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